November 29, 2017 / 12:55 PM / a year ago

Israeli lawmaker warns Bank of Israel it could lose supervisory role

JERUSALEM, Nov 29 (Reuters) - The head of Israel’s parliamentary finance committee warned the Bank of Israel on Wednesday that it could be stripped of its banking supervisory role over its support of a controversial merger between two lenders.

Mizrahi-Tefahot, Israel’s third largest bank and biggest mortgage lender, said on Tuesday it plans to acquire smaller rival Union Bank for about $400 million in an all-share deal which still needs approval from the anti-trust commissioner.

Supervisor of Banks Hedva Ber has come out in favour of the merger, but several politicians, including Prime Minister Benjamin Netanyahu’s economic adviser Avi Simhon and members of parliament’s finance committee, have said it would hurt competition.

Earlier on Wednesday, finance committee chair Moshe Gafni had threatened to initiate legislation that would strip the central bank of the role of banking supervisor if it continued to support the deal.

“If there is no change in the conduct of the supervisor, I will initiate a bill to separate the banking supervision from the Bank of Israel,” Gafni told the committee, according to an emailed statement from the committee spokesman.

He said the legislation would “increase and tighten the supervision of the finance committee on the supervisor’s activities.”.

But in a subsequent statement, Gafni softened his stance, saying he was not considering separating banking supervision from the central bank’s mandate but that Ber’s position runs counter to the committee and many other lawmakers in the ruling coalition.

This “could lead to a situation where they would separate banking supervision from the Bank of Israel.”

Supervisor Ber has said the merger would help Mizrahi-Tefahot compete better with top banks Hapoalim and Leumi, which control 60 percent of Israel’s banking activity.

Some lawmakers on the finance committee argued that the merger, which could result in a combined entity controlling up 44 percent of the mortgage market, ran contrary to the law.

The Bank of Israel declined to comment on the possibility of a separation.

“We, the Bank of Israel, have already examined this and our data show that Union Bank does not contribute to competition, and the merger can increase competition as another body competing with the big banks,” Ber told parliament’s economics committee.

Israel has passed a new law that aims to boost competition in the banking sector and lower the cost of credit.

The central bank believes new players should be digital banks since Israel’s smaller traditional banks have failed to challenge the largest banks. (Reporting by Steven Scheer; Editing by Raissa Kasolowsky)

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